Ind. Ins. Co. v. Demetre

• Decision Date: 24 August 2017
• Docket Number: 2015-SC-000107-DG
• Parties: INDIANA INSURANCE COMPANY, Appellant v. James DEMETRE, Appellee
• Court: United States State Supreme Court — District of Kentucky

527 S.W.3d 12

INDIANA INSURANCE COMPANY, Appellant

v.James DEMETRE, Appellee

2015-SC-000107-DG

Supreme Court of Kentucky.

AUGUST 24, 2017

COUNSEL FOR APPELLANT: Donald Lee Miller, II, Kristin M. Lomond, Louisville, Quintairos, Prieto, Wood & Boyer, P.A., Michael D. Risley, Bethany A. Breetz, Louisville, Stites & Harbison, PLLC.

COUNSEL FOR APPELLEE: Kevin Crosby Burke, Louisville, Burke Neal PLLC, Robert Edward Sanders, Covington, Justin Aaron Sanders, The Sanders Law Firm, Jeffrey Sanders, Covington, Jeffrey M. Sanders PLLC.

COUNSEL FOR AMICUS CURIAE, THE INSURANCE INSTITUTE OF KENTUCKY: Ronald L. Green, Lexington, Green, Chesnut & Hughes, PLLC.

COUNSEL FOR AMICUS CURIAE, KENTUCKY JUSTICE ASSOCIATION: Hans George Poppe, Jr., Warner Thomas Wheat, Lousville, The Poppe Law Firm.

OPINION OF THE COURT BY JUSTICE HUGHES

Appellee James Demetre sued his insurer, the Indiana Insurance Company (hereafter "Indiana Insurance"), for bad faith arising from breach of his insurance contract, violation of the Kentucky Unfair Claims Settlement Practices Act, and violation of the Kentucky Consumer Protection Act. These claims stemmed from a vacant property owned by Demetre that had operated decades earlier as a gas station. When Demetre received notice that a family occupying a nearby residence was pursuing environmental claims against him for alleged migration of petroleum and other substances, he notified his liability carrier, Indiana Insurance, which provided a defense and eventually settled the family's claims. Indiana Insurance maintains that, having provided a defense and indemnification, Demetre has no viable bad faith claim but the trial court and the jury viewed the evidence of what occurred in the more than three years from notice of the family's claims to settlement of their lawsuit in an altogether different light. After an eight-day trial, the jury awarded Demetre $925,000 in emotional distress damages and $2,500,000 in punitive damages. The trial court denied post-trial motions and Indiana Insurance appealed to the Court of Appeals, which rejected Indiana Insurance's allegations of error and affirmed the trial court's judgment in its entirety.

On discretionary review, Indiana Insurance makes the following allegations of error: 1) the trial court erred in not granting its motions for directed verdict and judgment notwithstanding the verdict; 2) there was insufficient evidence of Demetre's emotional distress to sustain the jury's award of damages; and 3) the trial court erred by barring two of Indiana Insurance's witnesses from testifying at trial and by erroneously instructing the jury. The second issue requires us to consider whether expert testimony is necessary to support an emotional distress damage award in a bad faith insurance claim, a potential application (or more accurately extension) of our relatively recent decision in Osborne v. Keeney, 399 S.W.3d 1 (Ky. 2012). After careful consideration of the record and law, we affirm the Court of Appeals and thus affirm the trial court's judgment upon jury verdict.

FACTUAL AND PROCEDURAL BACKGROUND

In 2006, Demetre contracted with Indiana Insurance to provide coverage for his condominium residence and automobile. At the same time, Demetre obtained an excess liability or "umbrella" policy to provide him with additional coverage. These bundled policies provided Demetre with approximately $2,500,000 in liability coverage. Demetre expanded his coverage in 2008 by adding liability coverage for two parcels of real estate, one in Kenton County and the other in Campbell County. Indiana Insurance's coverage of the Campbell County property was the genesis of the case at bar.

Until 1962, the Campbell County property was the site of an active Texaco gas station. The station remained dormant until the 1990s, when efforts were made to remove the station and its fixtures from the property. In 1998, the station's underground gasoline storage tanks were removed and, the next year, the station's building was torn down and all remaining materials were hauled away. As such, when Demetre acquired the Campbell County property from his in-laws in 2000, the property had been reduced to an empty lot. Despite the removal of the gas station and tanks, the Commonwealth of Kentucky's Department for Environmental Protection continued monitoring of the property for some time.

In April 2008, Demetre contacted Indiana Insurance to obtain coverage for the Campbell County property. Demetre informed Gwendolyn Rich, an Indiana Insurance agent, that the lot had previously been the site of a gas station. When later deposed, Rich confirmed that she had informed Indiana Insurance's underwriting department of the lot's prior use as a gas station. Indiana Insurance agreed to insure the Campbell County property and added it to Demetre's liability coverage in April. At this time, a major misstep occurred internally at Indiana Insurance because although the property was insured it was apparently underwritten as though it was residential property.¹ Shortly thereafter, on June 29, 2008, renewed Demetre's insurance policy for another year.

On September 4, 2008, Demetre received a letter from an attorney representing Mahannare Harris, her partner Dorian Cosby, and Harris's five minor children (collectively, the "Harris family"). The Harris family had moved into a house on a lot adjoining the Campbell County property in 2004. In the letter, Paul Dickman, the lawyer for the Harris family, alleged that members of the family had suffered injuries due to gasoline emissions from the Campbell County property including "significant medical damages" and a loss in the fair market value of their residence. Demetre immediately notified his agent of the letter and, on September 11, 2008, the agent notified Indiana Insurance of the Harris family's claims.

Indiana Insurance initially assigned Demetre's case to adjuster Allen Geisinger. On September 17, 2008, Geisinger sent an "alert" to Indiana Insurance's Special Claims Unit, which handled environmental claims and toxic torts. Eighty-eight minutes later, Geisinger received a response from David Cowles of the Special Claims Unit, instructing him to work with adjuster Paula Matheny and stating that "[i]t appears their (sic) may not be coverage under the Insured's condo policy for this matter."

On October 30, 2008, Geisinger sent Demetre a letter by certified mail informing him that Indiana Insurance had questions as to whether the Harris family's claims were covered by his insurance policy and would "handle this matter under a reservation of rights." This letter was sent approximately two weeks after Geisinger acknowledged in an email to a co-worker that he was unsure whether there would be coverage for the Harris family's claims, while at the same time admitting "I don't know what claims are being made against the insured by the attorney."

Subsequently, Geisinger directed Indiana Insurance's Field Investigation Unit to interview Demetre and to conduct an investigation of the Campbell County property. This investigation included obtaining from Shield Environmental Associates—the contractor monitoring groundwater underneath the Campbell County property for the Commonwealth—all environmental records, information, data, and testing documents related to the Commonwealth's monitoring of the property. These efforts were directed to determining whether Demetre knew of the Harris family's claims beforethe Campbell County property was added to Demetre's insurance policy.

While Geisinger thoroughly investigated Demetre, his investigation of the Harris family's claims was practically non-existent. When asked what he had done to assist Demetre, Geisinger explained that he "undertook this investigation, responded to Mr. Dickman's letters, hired or assigned a Field Investigation Unit to do sitework." Geisinger acknowledged that while he had spoken to Dickman early in the case, the attorney knew very little about his clients or their alleged injuries. When asked about following up on the Harris family's claims, Geisinger explained that he was waiting for the Harris family's attorney to respond to him. There was no effort to interview the Harris family members, request medical records, seek medical exams, inspect or sample the soil near the Harris residence or otherwise determine the validity and nature of the claims being asserted against Demetre.

Despite this inaction, Geisinger wrote a letter to Demetre on March 23, 2009 (more than six months after Indiana Insurance had received notice of the Harris family's claims), where he stated "[p]lease recall that we are investigating the claims being made by Ms. Harris and her family. Their attorney has not provided us with any information regarding those claims." Geisinger then proceeded to ask questions about the status of the storage tanks from the Campbell County property. In closing his letter, Geisinger reminded Demetre that "[Indiana Insurance] continues to handle this matter under a reservation of rights."²

On March 27, 2009, Demetre's case was reassigned from Geisinger to Karen Shields Glardon.³ Despite the change in personnel, Indiana Insurance was consistent in its lack of progress in assessing the Harris family's claims. When questioned during the subsequent litigation, Glardon admitted to doing nothing to protect Demetre's interests during her handling of the case file. She did not seek information about the Harris family or their claims nor did she recall ever speaking with Demetre or Dickman.⁴

Despite Glardon's inaction, two significant developments occurred during her handling of the case. On June 29, 2009, Indiana Insurance renewed Demetre's insurance policy for another year. The second and more critical development came to pass on August 14, 2009, when the Harris family filed suit alleging trespass, nuisance and negligence claims against Demetre, and a third-party bad faith claim against Indiana Insurance. After consulting with the Special Claims...